c 

C) 


GIFT 


Our  New  Place  in 
World  Trade 


SXaTJ?* 


IVERSIT'PJ 


Guaranty  Trust  Company 
of  New  York 


J 


Our  New  Place  in 
World  Trade 


Guaranty  Trust  Company  of  New  York 

140  Broadway 

FIFTH    AVEME    OFFICE  MMIISON   AVENUE  OFFICE 

Fifth  Avrniie  and  44th  Strict  Madistm  Avenue  am)  60ih  Street 

GRAM)  STRfXT  OFFICE 
268     Grand     Sir  ret 

LONDON  LIVERPOOL  PARIS  IIWKL 

BRUSSELS  CONSTANTINOPLE 


COI-VltKillT,   lO'il 
<il  AUANTV  TIM  ST  COMPANY  <>l'  NKW  YOUK 


so 


;•-•'.:•;;•.: 


\'ital  Importance  of  Foieion  Trade 


SI\('K  tlif  hi'^iiiniiiii  111'  lilshii-y  iiitcr- 
iiational  trade  lias  jjlayed  a  very  iiii- 
Ijortant  jiart  in  the  pr<)S|)erity  and  |)n>- 
gress  of  all  great  states.  The  PluTenicians 
were  traders  with  far  countries  more  than 
three  thousand  years  af>;o;  the  Greeks 
were  eager  nierrhants  and  sailors,  as  well 
as  architects  and  statesmen;  the  Roman 
Empire  was  a  powerful  economic  state. 
\'enice  had  her  glorious  period  of  trade 
domination,  lost  when  rivals  in  Spain  and 
Portugal  overcame  her  conunercial  ad- 
vantages. The  Hanseatic  League  also 
had  its  long  career  of  leadership  in  com- 
merce and  in  shipping.  The  Dutch  in 
turn  with  their  skill  in  manufacture  and 
finance  and  their  merchant  fleets  wrote 
another  hrilliant  page  in  this  chronicle. 

Then  (ireat  Britain  began  her  wonder- 
ful .series  of  commercial  concjuests  that  led 
directly  to  political  empire  in  many  coun- 
tries. Her  adventure  in  India  had  its 
origin  in  the  enterprise  of  a  great  trading 
company  and  the  initiative  of  her  mer- 
chant sailors  won  for  her.  one  after  an- 
other, colonies  and  dependencies  through- 
out the  entire  world.  Her  fleets  were 
found  in  the  most  remote  ports  and  one 
by  one  her  sons  established  themselves  in 
trading  outposts  in  every  rich  dominion. 
Her  iron  and  coal,  her  wool  and  other 
raw  materials,  coupleil  with  industrial 
skill,  gave  scope  for  the  development  of 
manufactures.  As  her  wealth  grew,  her 
interests  abroad  nuiltii)lied,  and  London 
l)ecame  the  financial  center  of  tiie  world, 
as  well  as  the  greatest  of  all  clearing 
hou.ses  ff)r  commodities. 

Prior  to  1914.  Great  Britain's  position 
in  shipping,  in  finance,  and  in  trade  was 
not  seriously  challenged  by  any  other 
country,  although  (Jermany  was  striving 


l<i  (ixcrlake  her  by  cH'oi'ls  llial  were 
directed  with  great  iTilelligeni  c  and  com- 
l>ined  all  the  powerful  economic  resources 
of  that  nation.  Leadership  in  Germany 
iiad  a  complete  coni])rehensi(>n  of  the 
elements  that  mu.st  form  the  basis  of  suc- 
ces.sful  international  commerce — a  great 
merchant  marine,  foreign  investments. 
i)anking  and  trading  organization,  highly 
develo])ed  domestic  industries,  and  the 
control  of  sujjplies  of  raw  materials,  as  far 
as  pos-iible,  in  the  primary  markets  of  the 
world.  Her  success  in  these  efforts  was  so 
great  that  it  will  always  be  surjjrising  to 
the  future  generations  that  she  should 
have  been  willing  to  risk  her  assured  posi- 
tion in  the  costly  and  ruthless  speculation 
of  the  great  war. 

Must  Decide  Future  Policies 

The  lessons  of  this  record  of  the  past  are 
clearly  written  for  those  who  study  the 
])re.sent  position  of  our  own  country.  The 
I'nited  States,  blessed  with  resources 
both  natural  and  industrial  that  are 
beyond  comi)arison,  richer  and  more  i)ow- 
erful  than  any  other,  must  now  make  the 
great  decision  as  to  her  future  jwlicies. 
All  the  weajions  for  peaceful  and  legit i- 
nial<'  leadership  are  within  her  grasp.  The 
war  has  strengthened  the  United  States 
where  she  was  weak.  Her  merchant  fleet 
emjjloyed  in  foreign  trade  in  1913  was 
only  1,019,15.5  tons.  Now  it  is  .second 
only  to  that  of  (ireat  Bril.iiii  and  coni- 
])ri.ses  .some  15,000,000  tons. 

Since  our  earliest  days  as  a  nation,  it 
has  been  a  tradition,  carried  ahnosi  to 
extreme,  that  we  should  maintain  a  ])()si- 
tion  of  aloofness  in  international  aft'airs, 
and  this  attitude  has  influenced  our  poli- 
cies towards  foreign  trade  and  shipping, 

[3 


M54236 


A  sugar  mill  in  Cuba.     Considerable  American  capital  is  mrcslcil  m  Ihc  Cuban  augar  indu-ibij 


as  well.  We  have  always  liad  a  foreifjii 
commerce,  but  never  as  a  primary  in- 
terest, as  in  Great  Britain  and  Germany, 
where  such  trade  has  been  \ital  to  them 
for  many  years.  Our  own  domestic  mar- 
ket has  been  so  great  that  it  absorbed  by 
far  the  greater  ])ercentaf;c  of  our  produc- 
tion of  every  kind  anil,  similarly,  the  op- 
portunities at  home  for  the  use  of  capital 
for  the  development  of  our  abundant  re- 
sources ha\e  not  only  absorbed  all  our 
own  surplus  funds  for  investment,  but 
have  also  drawn  upon  the  capital  of  other 
countries,  (ireat  Britain  especially,  to  a 
lotal  of  billions  of  dollars. 

Financial  Position  Changed 

It  is  true  that  mines  in  Mexico,  (liilc 
and  j'cru.  Ihc  meat  freezing'  plants  in  \v- 
gcntina,  I  rnguay  and  Paraguay,  and  Ihc 
paper  industry  in  Canada,  for  exani|)le, 
have  attracted  sc\eral  huTidred  millions 
of  our  inxcstments  abroad,  but  we  were 
heavily  indebted  to  other  countries  for 
(■apital  they  had  loaned  to  lis  during  niaiiy 


years.  Today  the  change  in  this  financial 
situation  of  the  country  is  very  marked. 
We  have  rebought  a  large  proportion  of 
our  foreign-owned  securities  and,  in  addi- 
tion, ha\e  loaned  about  fifteen  billions  to 
foreign  governments  and  to  municii)al 
and  ]>rivate  creditors,  ni.niily  in  Piiropeaii 
countries. 

Banking  Organization  Extended 

'{'he  Federal  Reserve  Act  has  given  us  a 
foreign  banking  organization  that  is  (|iiite 
ade(|Uate  for  the  needs  of  our  interna- 
tional position  and  is  constantly  being  ex- 
tended. The  large  American  banks  lia\-e 
numerous  branches  abrojid.  and  in  e\ery 
country  there  are  direct  banking  connec- 
tions with  New  York.  Whatever  may  he 
t  lie  de\'elo])ment  of  oiu'  foreign  trade,  it 
will  surely  be  accom|)anied  by  a  similar 
growth  and  strengthening  of  this  great 
financial  organization.  u|)on  whose  ser\ice 
must  rest  the  orderly  and  successful  con- 
duct of  ox'erseas  commercial  transac- 
I  ions. 


The  record  of  tho  wonderful  rebirth  of 
our  merchant  marine  is  so  recent  and 
striking  that  it  is  known  to  everyone. 
For  years  we  had  been  lamenting  the  fact 
that  the  glory  of  our  great  fleets  of  speedy 
clipper  ships,  which  formerly  carried  the 
American  flag  to  every  port,  had  passed 
from  the  seas.  But  every  effort  to  re- 
establish a  merchant  fleet  had  been  de- 
feated by  a  provincial  political  attitude 
towards  the  problem  or  by  our  national 
inditference  to  our  position  as  a  trading 
nation  dependent  upon  commercial  rivals 
for  the  trans]50rtation  of  our  exports  and 
imports. 

"  Merchant  Marine  Revived 

American  vessels  carried  94. "^  per  cent, 
of  our  imports  and  80. 5  per  cent,  of  our 
exports  in  1830.  In  1860,  these  percent- 
ages had  fallen  to  60.1  and  70  per  cent., 
respectively.  This  diminishing  contin- 
ued until  in  1910  only  10  per  cent,  of 
our  imports  and  7^2  P^r  cent,  of  our  ex- 
ports were  carried  under  our  own  flag. 
The  shipping  los.ses  of  the  Civil  War  de- 
pleted our  fleets,  and  the  absorption  of  our 
interest  in  the  development  of  our  internal 
resources  and  the  competitive  advantage 


held  by  Great  Britain  in  the  production 
and  control  of  iron  and  steel  ships  led  to 
our  almost  complete  witlulrawal  from  the 
high  seas. 

Our  shipping  legislation  also,  however 
well  intentioned,  actually  o])eratetl  to 
handicap  the  growth  and  movement  of 
American-owned  shipping  through  the  im- 
position of  recjuirements  and  restrictions 
that  rendered  costs  of  maintenance  rela- 
tively higher  than  those  of  our  competi- 
tors. The  exigencies  of  the  war,  however, 
forced  upon  us  the  construction  of  an  ade- 
quate fleet  and  thus  rounded  out  the  na- 
tional equipment  for  primacy  in  interna- 
tional commerce. 

Foundation  for  Foreign  Trade 

Now  we  have  all  the  foimdation  stones 
for  any  international  trade  structure  that 
we  may  decide  to  erect:  We  have  ships, 
a  world-wide  banking  organization,  illim- 
itable ca])acity  for  production  of  both 
raw  materials  and  manufactures,  and  cap- 
ital resources  far  beyond  any  competitor. 
We  have  ceased  to  be  a  debtor  nation  and, 
in  addition  to  a  record  of  actual  favorable 
trade  balances  of  billions  for  the  last  two 
or  three  years,  we  shall  have  an  invisible 


.1  nilmli-  t/{ir<l  in  Chile.     Large  amounts  of  American  capital  are  invested  in  the  ChiUan 

nitrate  industry 


[5 


ItV  tioir  hnve  a  great  n,ei\)i(iiit  iiiarinc  to  carrn  our  (joads  orcr  the  .seren  .sfu-s 


export  reijreseiiteci  V)y  interest  on  the  vast 
sums  tliat  liave  lieen  loaned  ahroatl. 

Hifjli  |)rices  liave  heen  an  inii)ortant 
factor  infiueiicing'  this  wonderful  record 
of  exports,  but  in  si)ite  of  that  element, 
the  figures  of  our  present  trade  disclose  an 
unusual  story  of  commercial  activity. 
\'astly  increased  capital,  ample  shipping, 
and  an  enf)rmous  foreign  trade  were  all  the 
immediate  result  of  the  stimulus  of  the 
war,  conil)in('(l  with  our  exce])tional  re- 
sources as  an  agricultural  and  manufac- 
turing nation. 

Courageous  National  Policy  Needed 

We  arc  now  at  the  parting  of  the  ways. 
What  are  to  he  our  policies  in  this  new 
relation  which  we  hold  in  the  world  of 
trade!'  All  of  the  elements  re(iuircd  to 
control  and  cxicnd  our  commerce  arc  al 
our  coininau<l.      .\r<'   we   ui   th<'   mood   lo 

0] 


.seize  this  greatest  of  all  our  op] xirt unities!' 
In  fact,  we  must  go  forward,  or  wc  shall 
inevitably  he  forced  to  retreat  from  our 
])resent  j)osition  with  heavy  losses  all 
along  the  line — in  shipping,  hanking  am' 
trade.  We  arc  already  \igorously  chal- 
lenged by  competitors  in  foreign  markets. 
.V  courageous  national  policy  of  legiti- 
mately aggressive  dcxcloimient  of  all  these 
newly  coordinated  resources  for  the  con- 
duct of  foreign  trade  is  essential.  With- 
out constant  initiative  and  ])ositive  effort 
we  shall  gradually  be  <lrivcn  out  of  our 
advantageous  situation. 

Th(>rc  is  no  one  .Vnicrican — merchant, 
manuf.icturcr,  banker,  farmer  or  laborer 
who  h,is  not  sonic  stake  in  this  strug- 
gle. Our  sales  abroad  of  two  billion  dol- 
lars worth  of  food  products  anmially  is 
a  fact  of  im])ortMiicc  to  every  farmer, 
<'ithcr  in  direct    interest   op  in  effect    u|)on 


prices.  Exports  of  two  Iniiulred  million 
dollars  worth  of  tohacco  ami  more  than  a 
billion  dollars  in  value  of  cotton  add  force 
to  this  argument. 

Surplus  Production 

Further,  our  vast  industries  when  fully 
employed  now  ])roduce  such  a  surplus 
over  domestic  demands  that  loss  of  a  for- 
eign outlet  for  this  surplus  would  mean 
serious  lalior  de])ression.  It  is  no  longer 
true  that  we  can  look  with  comparative 
indifference  upon  our  exports  of  manufac- 
tured articles  as  comprising  too  small  a 
part  of  our  total  trade  to  be  a  matter  of 
serious  concern  when  they  fall  ofT.  For 
man}^  years  the  ratio  of  exjjorts  of  manu- 
factures to  our  total  manufacturing  pro- 


duction has  been  increasing,  until  now  it 
has  reached  an  amount  that  probably 
spells  the  difference  tietween  prosperity 
and  failure  in  many  industries.  Sales  of 
nearly  three  hundred  million  dollars  worth 
of  automo})iles  abroad  are  a  case  in  |)oint, 
or,  for  example,  the  total  sales  of  leather 
products  valued  at  nearly  two  hundred 
million  dollars. 

It  is  well  to  examine  the  recent  de- 
velo])ment  of  our  trade  in  some  detail,  for 
as  we  study  the  situation,  at  every 
turn  we  |)erceive  the  urgency  of  a  nation- 
wide comprehension  of  these  facts — our 
need  for  foreign  markets  and,  further,  our 
reliance  upon  foreign  sources  of  supply  of 
essential  raw  materials  to  keep  our  factor- 
ies employed. 


•  ■I.yright  hy  Un.lerwomt  i  l-i.,)erwo..d 

\eiv  York,  ihrnugh  irliith  /;(7.s.se.s  miirhi  half  of  tlif  unports  nn/i  crportu  of  the  countnj 


\1 


During  and  After  the  War 


WHEN  we  review  tlie  course  of  our 
foreign  trade  duriuj;  tlie  war  and 
since  the  signing  of  the  Armistice,  it  is  ob- 
vious tliat  we  aic  dealing  with  a  period 
whioli  is  abnormal,  as  compared  with  any 
])eriod  of  our  peace  time  exjierieuce.  Dur- 
ing the  nineteenth  century  our  merchan- 
dise trade  grew  steadily  larger  in  value. 
During  the  years  1915  to  920,  inclusive, 
this  increase  was  tremendous  and  exports 
grew  so  much  more  rajjidly  than  imports 
that  we  ijiled  up  an  astonishing  excess  of 
outgoing  goods. 

Our  foreign  trade  may  be  conveniently 
divided  into  three  large  classes:  Food- 
stuH's,  including  wheat,  flour,  meat,  fruits, 
dairy  produce,  etc.;  raw  materials,  includ- 
ing cotton,  coal,  tobacco,  lumber,  copper, 
zinc,  iron,  steel,  leather,  oil,  etc.;  and 
manufactures,  including  agricultural  im- 


|)lenients,  textiles,  machinery,  automo- 
biles, locomotives,  and  other  finished 
products.  Each  of  these  may  be  further 
subdivided  as  minutely  as  the  interested 
I)erson  may  desire,  but  for  the  sake  of  sim- 
plicity we  shall  consider  here  only  the 
broad  divisions  mentioned. 

Changes  in  Character  of  Trade 

An  effect  of  the  war  upon  our  export 
trade  was  an  immediate  increase  in  the 
shipment  from  this  count rj-  of  foodstuffs 
and  of  finished  manufactures.  As  Euro- 
pean industry  turned  from  its  normal  pur- 
suits to  the  production  of  munitions,  a 
decline  took  place  in  shipments  of  raw 
materials  as  a  whole,  though  certain  raw 
materials,  such  as  copper,  were  in  greater 
demand  than  formerly.  Cotton,  which  had 
comprised  the  bulk  of  raw  exports,  was  then 


One  hundred  years  of  our 


B 

1                   , 

7 

6 

Chart  of  the 

5 

FOREIGN  MERCHANDISE  TR.\DE 
OF  THE  UNITED  STATES 

4 

1820-1920 

3 

By  Fiscal  '^ears  ending  June  30th. 
Silver  Inchuled  after  1873. 

2 

fnit  .?i.()i)i),ooo,()nn. 

Drawn  to  sbow 

1 

Proportional  \"ariat:ons. 

18; 

JO                        18 

40                        18 

50                    18 

60 

IB 

81 


desired  in  the  finished  rather  tliiui  the  raw- 
condition. 

Dnring  1919  and  1940,  on  the  other 
iiand,  the  major  increase  in  onr  export 
trade  is  tracoahle  to  the  demand  of  the 
old  industrial  nations  for  our  raw  mate- 
rials and  our  foodstuffs,  which  were  needed 
to  reestablish  their  manufactures.  Our 
shi{)ments  of  raw  materials,  especially  cot- 
ton and  tobacco, began  to  increa.se,  though 
coj^ijer  and  steel  decreased.  At  the  same 
time,  the  exports  of  foodstuffs  and  of 
many  manufactures  increased  very  rapidly. 

Inii)orts  also  grew  in  the  Armistice 
years  more  rapidly  than  at  any  previous 
time  of  our  history.  However,  the  princi- 
pal increase  was  in  imports  from  Latin- 
.\merica  and  the  Orient,  rather  than  in 
those  from  Europe.  A  very  large  percent- 
age of  the  total  increase  is  represented  by 
raw  materials  and  foodstuffs,  such  as 
hides,  rubber,  silk,  coffee  and  sugar.  The 
importation  of  such  articles  had  been  re- 
stricted when  shipping  was  diverted  from 
ordinary  mercantile  channels  to  the  trans- 
jjort  of  our  army  and  its  sujiplies  to  France. 


With  the  return  of  shipping  to  its  trade 
routes,  imports  of  these  articles  became 
so  large  that  the  country  was  rapidly 
flooded  with  more  than  it  could  consume 
at  high  prices.  In  consetjuence,  these  im- 
ports have  now  been  jjractically  suspended, 
and  the  countries  of  which  they  are  staple 
exj)orts  are  undergoing  severe  commercial 
readjustment  to  more  normal  trade  condi- 
tions. As  industrial  Europe  returns  to  its 
pre-war  manufactures  and  regains  its 
former  re-export  trade,  it  is  probable  that 
a  considerably  larger  percentage  of  our 
imports  will  be  from  that  quarter. 

Changes  in  Volume  of  Trade 

Great  changes  have  taken  place  not 
only  in  the  character  and  value  but  also  in 
the  volume  of  our  foreign  trade.  By  con- 
sidering for  a  moment  the  changes  in  vol- 
ume, we  can  see  more  clearly  what  is 
abnormal  in  our  present  situation  and  how 
far  we  have  progressed  on  a  sound  and 
permanent  basis. 

Our  foreign  merchandise  trade  grew 
enormously  in  value  during  the  war  and 


Foreign  Trade    1820  to  1920 


s 

a 

y 

7 

7 

/ 

6 

6 

J 

5 

5 

Exports  "^^^^^^Z 
Inipurts ^ 

4 

4. 

/          / 

3 

3 

/        j 

2 

2 

y^  / 

1 

— <^ 

70 

18 

80                  18 

90                    19 

00                     19 

10 

[8 


si  ill  iiKM'c  (hiring  tlic  two  years  of  tlic 
Annistifc.  No  small  part  of  the  growth. 
of  course,  has  been  due  to  price  inflation: 
consequently,  we  can  not  expect  to  main- 
tain this  growth  in  the  present  period  of 
declining  prices.  Studies  which  have  been 
made  by  the  Harvard  Review  of  Eco- 
nomic Statistics  of  the  ])hysical  volume  of 
our  foreign  trade  during  the  war  show  a 
real  expansion,  though  by  no  means  as 
great  as  the  apparent  expansion  indicated 
by  the  value  figures.  They  also  show  that 
tiic  maximum  expansion  in  volume  was 
reached  in  1!)17,  and  that  there  has  been 
a  slight  falling  off  since.    If  we  take  the 


adjusted  average  of  exports  for  which 
ipiantities  are  reported  in  the  fiscal  years 
1<)11  to  19U  as  lOO't,  the  following  table 
will  afl'ord  a  comparison  between  the  rela- 
tivc  increases  in  value  and  in  volume: 

I.')ll-14    1915  1.910     1.017     1918     1919 

A verage 

Value      lOO'-f  123%  191%  279%  261%,  317%o 

Volume  100' c   122%  157%,  171%  12.5%  142% 

Such  a  comparison  serves  to  correct  the 
idea  that  our  foreign  trade  at  ])re.sent  is 
really  growing.  It  does  not  otherwise 
affect  the  discussion  about  to  be  taken  up 
of  how  our  foreign  trade  is  balanced  by 
so-called  "invisible"'  .services. 


C'upyrtglil  bjlUiiilvrMoiMl  A  (  ii<1(tm-m.i 

Unloaliiig  goods  from  the  i'nikd  stales  in  ]'(ii(  nuJa 
10] 


Financing"  Excess  of  Exports 


THE  most  remarkable  feature  of  the 
expansion  of  our  foreign  trade  is  the 
wide  (iitt'ereiu-e  between  the  vahie  of  our 
exports  and  imports  of  merchandise. 
From  the  outbreak  of  the  war  in  1914  to 
the  end  of  1918  tlie  excess  of  our  exports 
over  imports  reached  a  total  of  more  than 
$ll,0(t(),()()0,000.  This  excess  has  con- 
tinued to  grow  until  for  the  whole  period 
of  the  war  and  Armistice  to  the  end  of 
19'-2(»  the  total  excess  is  nearly  $19,000,- 
()()(), 000.  Tile  question  is  naturally  raised 
of  how  foreign  buyers  pay  for  our  goods 
which  they  buy  in  such  enormous  amounts. 
It  is  obvious  that  the  exports  of  mer- 
chandise from  a  country  are  in  effect  paid 
for  in  large  part  by  the  imports  of  the 
country,  and  that  only  so  much  of  the 
total  exports  as  is  in  excess  of  imports 
must  be  liquidated  by  other  forms  of  pay- 
ment. Such  trade  deficits  are  usually  and 
normally  met  by  the  shipment  of  gold  be- 
tween countries.  This  method  was  u.sed 
to  a  great  extent  during  the  first  few  years 
of  the  war,  as  the  following  table  of  gold 
exports  and  imports  indicates.  Most  of 
the  gold  came  from  the  Entente  coun- 
tries, while  most  of  our  shipments  of  the 
metal  went  to  Latin-America  and  the 
Orient  to  liquidate  the  debt  we  owed  in 
those  parts  of  the  world. 

GOLD  EXPORTS  AXD  IMPORTS  OF  THE 

UNITED  STATES  FROM  1915  TO  1918 

(Units  of  $1,0I)<),()00) 

Excess    Excess 
of  of 

Fiscal  y  ears     Exports  Imports  Exports  Imports 


1915  .    .    . 

1916  .    .    . 

1917  .    .    . 

1918  .    .    . 
191S  (July  to 

December).       19  6 


146-2  175.0  28. S 

90.4  494.0  ....  403  6 

291.9  977.2  685  3 

190.8  109.8  81.0       


11  9 


Total  .    .     738  9     1767.9 


1029  0 


Yearly  Average  164.2      392.9 


228.7 


It  was  not  desirable,  however,  that 
France  and  Great  Britain  should  pay  all 
their  debts  to  this  country  in  gold;  the 
metal  is  the  basis  of  most  of  the  world's 
important  currencies  and  stocks  of  gold 
should  accordingly  be  diffusetl.  By  the 
end  of  1917,  we  had  $3,041, .500,000  in 
gold,  or  about  one-third  of  the  world's 
total  stock  of  gold  in  banks,  ])ublic  treas- 
uries and  circulation.  This  was  more  than 
enough  for  our  needs  and  to  have  con- 
tinued to  take  gold  from  our  associates  in 
the  war  would  only  have  disrupted  their 
currencies  and  rendered  them  jjowerless 
to  carry  on. 

In  fact,  all  the  gold  in  the  world  would 
have  been  insufficient  to  pay  for  our  goods 
which  had  been  exported  in  excess  of  our 
imports.  Such  a  situation,  of  course,  had 
been  foreseen,  as  we  had  not  relied  en- 
tirely upon  gold  payments.  Rather,  we 
placed  our  main  reliance  in  the  export  of 
our  capital  in  support  of  our  foreign  trade. 

Exporting  American  Capital 

Payments  in  various  invisible  ways, 
rather  than  in  gold,  were  the  means  used 
for  li(iuidating  the  great  excess  in  our 
merchandise  export  trade.  American  cap- 
ital has  been  exported  in  large  amounts 
tluring  the  last  six  years  for  investment, 
for  speculation  and  develoj)ments,  for 
charity,  freight,  insurance,  and  travel.  It 
is  possible  to  specify  definite  amounts  for 
only  one  of  these  item.s — investment 
loans;  the  remainder  must  be  estimated, 
because  their  private  nature  makes  it 
[>ractically  impossible  to  secure  accurate 
data  concerning  them.  In  this  way  we 
have  made  it  possible  for  foreigners  to 
paj'  for  the  great  quantity  of  our  goods 
they   have  i)urcha.sed.     The  transfers  of 

[11 


still  more  durili;;  the  two  years  of  tlic 
Arniistif'o.  \o  .small  part  of  tlio  growth. 
of  course,  has  been  due  to  ])rice  inflation: 
consefjuently,  we  can  not  exi)eet  to  main- 
tain this  growth  in  the  present  period  of 
declining  prices.  Studies  which  have  been 
made  by  the  Harvard  Review  of  Eco- 
nomic Statistics  of  the  ])hysical  volume  of 
our  foreign  trade  during  tlic  war  show  a 
real  cx|jaiision,  though  by  no  means  as 
great  as  the  apparent  expansion  indic-ated 
by  tlie  value  figures.  They  also  show  that 
tiic  maximum  expansion  in  volume  was 
reached  in  1!)17,  and  that  there  has  been 
a  slight  falling  off  since.    If  we  take  the 


adjusted  axcragc  of  c\|)orts  for  wliich 
quantities  are  reported  in  the  fi.scal  years 
li)ll  to  19U  as  lOO't,  the  following  table 
will  afi'ord  a  comparison  between  the  rela- 
tivc  increases  in  value  and  in  volume: 

lflIl-14    1915     1.910     urn     WIS     19I9 

A  rerage 
Valup      lOO'-f  123%  191%  279%  261%  317% 
\oIunie  100%   122%c  157%  171%  125%  142% 

Such  a  conipari.son  serves  to  correct  the 
idea  that  our  foreign  trade  at  ])re.sent  is 
really  growing.  It  does  not  otherwi.se 
afi'ect  the  discussion  about  to  be  taken  up 
of  how  our  foreign  trade  is  balanced  by 
so-called  "invisible"  .services. 


UnloaliiKj  goods  from  the  i'tiilcd  States  in  Venezuela 


10] 


Financing  Excess  of  Exports 


TflE  most  remarkable  feature  of  the 
expansion  of  our  foreign  trade  is  the 
wide  ditt'erence  between  the  vahie  of  our 
exports  and  imports  of  merchandise. 
From  the  outbreak  of  the  war  in  1914  to 
the  end  of  1918  the  excess  of  our  exports 
over  imports  reached  a  total  of  more  than 
$11,000,000,000.  This  excess  has  con- 
tiiuied  to  grow  until  for  the  whole  period 
of  the  war  and  Armistice  to  the  end  of 
V.HO  the  total  excess  is  nearly  $19,000,- 
000, 000.  The  ((uestion  is  naturally  raised 
of  how  foreign  buyers  pay  for  our  goods 
which  they  buy  in  such  enormous  amoimts. 
It  is  obvious  that  the  exports  of  mer- 
chandise from  a  country  are  in  eifect  ]>aid 
for  in  large  part  by  the  imports  of  the 
country,  and  that  only  so  much  of  the 
total  exports  as  is  in  excess  of  imports 
must  be  liquidated  by  other  forms  of  pay- 
ment. Such  trade  deficits  are  usually  and 
normally  met  by  the  shipment  of  gold  be- 
tween countries.  Tiiis  method  was  used 
to  a  great  extent  during  the  first  few  years 
of  the  war,  as  the  following  table  of  gold 
exports  and  imports  indicates.  Most  of 
the  gold  came  from  the  Entente  coun- 
tries, while  most  of  our  shipments  of  the 
metal  went  to  Latin-America  and  tlie 
Orient  to  liquidate  the  debt  we  owed  in 
those  parts  of  the  world. 

GOLD  EXPORTS  .\ND  IMPORTS  OF  THE 

fXITED  STATES  FROM  191.5  TO  191S 

(Units  of  $1,000,000) 

Excess    Excess 
of  of 

Fiscal  1  ears     Exports  Imports  Exports  Imports 

1915  ....  1402  175.0  28  S 

1916  ...  904  494.0  4031) 

1917  ....  291.9  977.2  (5S5  :i 

1918  ....  190.8  109.8  Sl.O        

1918  (July  to 


December) . 
Total  .    . 


19  6 


11  9 


738.9     17(>7.9 


1029.0 


Yearly  Average  164.2      392.9 


228.7 


It  was  not  desirable,  however,  that 
France  and  Great  Britain  should  ])ay  all 
their  debts  to  this  country  in  gold;  the 
metal  is  the  basis  of  most  of  the  world's 
important  currencies  and  stocks  of  gold 
siiould  accordingly  be  diffu.sed.  By  the 
end  of  1917,  we  had  $3,041, .500,000  in 
gold,  or  about  one-third  of  the  world's 
total  stock  of  gold  in  banks,  public  treas- 
uries and  circulation.  This  was  more  than 
enough  for  our  needs  and  to  have  con- 
tinued to  take  gold  from  our  associates  in 
the  war  would  only  have  disrupted  their 
currencies  and  rendered  them  powerless 
to  carry  on. 

In  fact,  all  the  gold  in  the  world  would 
have  been  insufficient  to  pay  for  our  goods 
which  had  been  exported  in  excess  of  our 
imports.  Such  a  situation,  of  course,  had 
been  foreseen,  as  we  had  not  relied  en- 
tirely upon  gold  payments.  Rather,  we 
jjlaced  our  main  reliance  in  the  exjjort  of 
our  capital  in  support  of  our  foreign  trade. 

Exporting  American  Capital 

Payments  in  various  invisible  ways, 
rather  than  in  gold,  were  the  means  used 
for  li(|ui(lating  the  great  excess  in  our 
merchandise  export  trade.  ATnerican  cap- 
ital has  been  exported  in  large  amounts 
during  the  last  six  years  for  investment, 
for  speculation  and  devel()])nuMits,  for 
charity,  freight,  insurance,  and  travel.  It 
is  ])ossible  to  specify  definite  amounts  for 
only  one  of  these  items — investment 
loans;  the  remainder  must  be  estimated, 
because  their  private  nature  makes  it 
|)ra(tically  impossible  to  secure  acciu-ate 
data  concerning  them.  In  this  way  we 
have  made  it  possilile  for  foreigners  to 
j)ay  for  the  great  quantity  of  our  goods 
they  have  purchased.    The  transfers  of 

[11 


The  uater-frunt 
of  Havana 


Along  the  ilocks 
of  Liverpool 


The  lliirhor  of  (Iciioa 


Ports  of  Kntrv  for  Americ 


The  biisi/  port  of 
Rio  dr  Janeiro 


Xeirchwang 
Harbor,  a 
gateway  for 
future 
American 
trade  iu 
Manr.huria 
and  Siberia 


CopyriKht  by  E.  M.  Newui;in 


Constantinople,  the  Golden  Horn,  and  Slamboul 


n  Goods  the  World  Over 


riin(l>  fur  tlit'sc  iiil;mj;il)le  services,  etc., 
wliicli  are  the  so-called  iiivisil)le  items  of 
trade,  are  as  truly  coiiiinodities  as  are 
the  visible  materials  of  commerce. 

Private  Loans 

The  invisible  items  of  which  the  amounts 
are  known  are  the  loans  of  capital  made 
by  the  United  States  to  other  countries. 
These  are  of  two  kinds — loans  made  l)y 
individual  citizens  through  banking  and 
investment  houses  to  foreign  states,  mu- 
nicipalities and  corporations,  and  loans 
made  by  our  Government  to  other  govern- 
ments. 

The  task  of  insjiiring  confidence  in  the 
future  ability  of  countries  at  war  to 
repay  borrowings  was  not  easy,  and 
could  not  have  been  accomplished  had  we 
not  been  somewhat  accustomed  to  foreign 
investment.  Some  of  the  loans  made 
were  secured  by  pledge  with  a  trustee  of 
collateral  securities,  such  as  the  United 
Kingdom  of  Great  Britain  ami  Ireland 
o]/2%j  Gold  Notes  issued  November,  1910, 
for  which  the  Guaranty  Trust  Company 
acted  as  trustee.  Others,  such  as  the 
.%50(),0()(),()()()  Anglo-French  5%  Loan,  re- 
payed  October  15,  1!)'20,  were  floated 
without  other  security  than  the  faith  and 
credit  of  the  borrowing  governments. 

The  disposition  and  amount  of  the  vari- 


C.T.v'll 


AgricuUural  machinery  from  the  United  States 
arriving  in  Peru 


ous  foreign  loans  floated  through  iiixest- 
inent  bankers  in  the  United  States  sin<-e 
July,  1014,  and  outstanding  December  .'51, 
1920,  may  be  conveniently  summarized  as 
follows : 

Great  Britiiin     .    .  S6S,S,4<.)4,.500 

France 22;5,7.5.S,000 

Russia I07,.")0().000 

I5el}iiuni      ....        Sfi.Odd.OOO 

Italy L'.-),0()0.000 

tieniiaiiy    ....         2,000,000 
European  neutrals.     166,000,000 

Total  European .§1,29.S.7.52,.500 

Canada .540,021,877 

Latin-America r2i>,6',)3,3.50 

Pacific  Countries 24,2.50,000 

Total .§1,989,717,727 

This  total  is  exclusive  of  $-l'26,4.>8,-l..58 
loaned  before  July,  1914,  and  still  out- 
standing, and  of  loans  or  credits  extended 
and  repaid  within  the  period,  such  as  the 
ii!.5()l).0()(),000  Anglo-French  ','",  already 
mentioned. 

Government  Loans 

l$y  the  spring  of  1917,  the  task  of  financ- 
ing our  huge  ex[jort  trade  had  taxed  the 
resources  of  our  private  investment  insti- 
tutions to  their  limit,  and  new  sources  of 
funds  had  to  be  found  if  our  foreign  trade 
was  to  be  carried  on  upon  the  scale  which 
the  war  demanded.  Once  in  that  strug- 
gle, we  sent  our  men  and  our  material  to 
Europe  to  win  it.  15nt  we  did  more.  Our 
Government,  appealing  to  the  patriotism 
of  its  citizens,  raised  hitherto  iniheard-of 
sums— a  total  of  $-.'(!. .•>!)(>, 701, (MS  i)y  Au- 
gust 31,  1919— and  of  this  total  loaned 
more  than  one-fourth  to  our  asso<'iates  in 
the  war.  For  the  period  of  our  partici])a- 
lion  in  the  war.  United  States  Govern- 
ment loans  to  other  govermneiits  jirac- 
lically  supplanted  all  private  investment 
in  foreign  securities,  and  the  total  of  these 
loans  soon  greatly  exceeded  all  prixate 
Id.iiis  of  this  character. 

Money  a(l\aiiceil  against  credits  estab- 
lisiied  by  I  lie  United  States  (ioxernment 
from   Ai)ril   '.'4,    1917,   to   November    l.j, 


14 


.1/1  Anitncaii  lucuiiiiiliii   in  Jiirii.     Aiiitiiiiiii  <ii(/iiics  are  used  the  world  over 


19'2().  in  t:i\(ir  of  foreign  govermnents,  to  sary    for    the    Government    to    continue 

enahle  tlieni  to  meet  commitments  made  granting  credits  to  ot'her  countries  until 

in   tiiis   country   in   connection   witli    tiie  private  financing  could  again  take  uj)  tlie 

prosecution  of  the  war,  is  shown  in  tiie  task. 

following  table:  These   credits   were   expended   by   the 

C'».s/i  Advanced         Rcpni/mcnts  govermnents  which  received  them  for  the 

Belgium     .    .    $349,214,467.89  .^lO.OOO.OO  |)ur<iuise  in  this  country  of  cereals,  cotton, 

Cuba  ....        10,000,000.00  .500,000.00  tobacco,  horses  and  munitions,  and  also 

Czechoslovakia     61,2.56,20(5.74  f,,,.     transj)ortation,     shii)ping,     interest, 

France  .  2,997,477,800.00      31,449,:5.57..5.5  „,.,t,„.ities  ^iid  reimbursements  of  various 

Cireat  Britain.  4,277,000,000.00       ,S0,1.S1,641..56  ,.     ,        ,,^,  ,.^       ,  , 

,,  ,-nnnnnr.nr.  kuids.    Uthcr  crcdit  advauccs  wcrc  madc 

Greece    .    .    .        lo, 000,000. 00  

jjjjjy                  1631338,986.99  on  account  of  the  sale  of  surjilus  war  mate- 
Liberia   .    .    .             26,000.00          rials  and  for  European  civilian  food  relief, 

Rumania    .    .       25,000,000.00        1,794,180.48  which  are  not  included  in  our  computa- 

Russia    .    .    .      187,729,750.00  ^i,,,^^    ,^1,,^.^   ^j^p    materials    were    sent    to 

Serbia      .    .    .        26,780,465.56  605,326.34  „  .        .  ^  »  i     4.1 

[ huro|3e  m  Army  transports  and,  there- 

S9,.580,823,677.18    .«1 14,540.505.93  fore,  do  not  appear  in  the  compilation  of 

Precisely  as  the  loaning  of  money  to  the  our  export  trade  made  by  the  customs 

Powers  with  which  we  became  associated  authorities. 

in  the  jjrosecution  of  tiie  war  was  one  of  We  nuist,  however,  include  amotig  our 

the  first   forms   of  aid   rendered  by  the  invisil)le  items  of  foreign  trade  $1,4!)(),- 

United  States,  so  it  was  one  of  the  last.  -J.JT.lll,  representing  English,  French  and 

During  the  first  six  months  of  the  Armis-  Italian  currencies  jjlaced  at  the  disposal 

tice,  our  Government  needed  all  the  funds  of  our  Government  l)y  tho.se  countries  for 

that  could  be  raised  in  the  home  market,  the  purchase  abroad  of  materials  needed 

Therefore,  it  would  probably  have  been  by  our  Army  in  the  prosecution  of  the 

imjiossiblc    for    foreign    governments    to  war.     This   represents   additional    remit- 

raise  by  loans  through  American  invest-  tances  abroad  of  American  funds,  as  the 

ment  bankers  funds  sufficient  to  pay  for  <lollar  equivalents  were  provided  for  the 

the  even   larger  quantities  of  American  u.se  of  the  respective  governments  to  meet 

goods  which  were  needed  l)y  the  entire  their    war    expenditure    in    the    United 

world  immediately  upon  the  cessation  of  States.     Therefore,   the  total  of  govern- 

hostilities.  ment  ex|)enditure  directly  su])porting  our 

foreign  trade  from  1917  to  19''20  reaches 

Use  of  Government  Loans  ,^,,^^q^^  $11,000,000,000.     If  we  add  the 

The   excess    of    our  exports    over   our  amounts  due  from  other  governments  for 

imports  grew  rapidly  in  this  period.     In  the  purchase  of  surplus  war  material  and 

order  to  support  this  trade  it  was  neces-  food  relief,  the  total  of  actual  loans  ex- 

[15 


tended  by  our  (ioveriimciit  will  rcacii 
$11,G0(),1,54,'2")7;  hut,  if  tliis  l)e  done,  the 
sum  of  $G49,.'5 13.975  must  be  added  to 
the  total  of  our  exports,  representiiifj  tlie 
value  of  American  materials  sent  al)r<)a(] 
but  not  accounted  for  in  the  compilation 
of  the  customs  authorities. 

For  convenience,  we  may  now  sum  uj) 
the  known  items,  both  visible  and  in- 
visible, of  our  foreign  trade  balance  dur- 
ing the  six  and  a  half  years  from  July  1, 
1914.  to  December  31,  19'20. 

A  table  showing  items  in  our  foreign 
trade  balance  between  July  1,  1914,  and 
December  31,  1920,  of  known  amounts 
follows: 

CREDIT 

Visible 


Exports   of  nierchaiitlise 

and  silver 
Exports  of  gold    , 


S39,477,S31.159 
1.429,262,624 


Invisible 
Interest  received  on  government  lo:uis 

DEBIT 

Visible 
1  mports   of  iiiereliundise 

and  silver    .      .      .  $20,528,606,984 

Imports  of  gold    .  2,259.323,817 


$40,907,093,783 

437,349,431 

$41,344,443,214 


Invisible 
Government  loans  less 

repayments 
Government  purchases  of 

foreign  currency 
Private  loans 


$22,787,930,801 


$9,406,283,171 


l,490,fl.-)7,lll 
1,989,717,727 


Leaving  a  debit  liquidated  bv  other  items 
of ■    .      . 


$12,946,558,009 
$35,7.34.488,810 
$.),609,954.404 


The  last  debit  in  the  table  consists  of 
invisible  items  representing  payments  for 
.services,  etc,  the  amounts  of  which  can 
only  be  estimated. 

Estimated  Invisible  Items 

To  present  a  complete  and  accurate 
balance  sheet  of  foreign  trade  during  the 
l)eriod  of  the  war  and  Armistice  is  imjjos- 
sible,  not  only  because  of  the  number  of 
invisible  items  which  must  l)e  estimated, 
but  also  because  foreign  trade  is  dynamic 
and  continuously  changing  and  does  not 
lend  itself  to  periodic  balancing.  There- 
fore, it  is  only  desired  to  call  attention  to 
the  fact  that  among  the  estimated  invisi- 
ble items  of  our  lialance  at  this  time  are 
several  of  considerable  moment,  which  are 
not  only  peculiarly  the  result  of  an  ab- 
normal situation  but  are  also  novel  in  our 
experience. 

On  the  credit  side  of  the  balance  slmnld 
be  added  items  of  payments  covering  in- 
terest and  dividends  upon  American  capi- 
tal in  use  in  other  countries,  bankers' 
profits,  freights  and  insured  los.ses  paid. 
The  total  of  these  and  other  payments  will 
raise  somewhat  our  debit  balance  of 
$5,6n9,9.54.404,  wliich  must  be  met  by 
invisible  items  of  unknown  total  amounts. 

On  the  debit  side  we  must  j)lace  the 


Tin  siilt'sriHUii  iif  ti  Idi'tff  Anirrifdu  fhrlrinil  rontiyinij  in  lirazil 


10] 


AiiiiiLCan  products  displiiijiil  in  a  slurc  nj  (  'nlmithni 


various  forms  of  American  capital  trans- 
ferred to  other  countries.  This  represents 
the  use  of  our  funds  abroad,  for  which  the 
owners  receive  returns  either  in  profits  or 
services. 

Repurchase  of  Securities 

The  principal  item  of  American  capital 
sent  overseas  during  the  war  was  for  the 
purpose  of  repurchasing  the  securities  of 
American  companies  in  which  investments 
had  been  made  by  European  capitalists 
before  1914.  Witli  the  fall  of  European 
exchange,  which  occurred  early  in  1915, 
American  securities  held  abroad  went  to 
a  premium  on  the  European  markets  and 
holders  began  to  sell  them  to  American 
purchasers  in  large  quantities.  According 
to  the  most  reliable  estimates,  approxi- 
mately A'-2.n(t(),0()().nOO  of  such  securities 
had  been  repurchased  by  America  before 
our  entrance  into  the  war.  This  move- 
ment has  continued  because  exchange 
rates,  which  had  been  pegged  by  the  dif- 
ferent governments,  fell  to  low  levels  in 
1919  and  19'20,  thus  placing  a  very  high 


premium  on  our  securities  in  Europe.  The 
high  relative  value  of  the  dollar  made 
large  profits  possible  for  those  in  Europe 
who  .still  had  American  securities  which 
they  could  sell  us.  It  seems  reasonable  to 
suppose  that  not  far  from  $3,000,000,000 
of  American  securities  had  been  repur- 
chased up  to  the  end  of  19'-20.  This 
repurchase  was  actually  the  first  form  in 
which  American  capital  was  ex])orted  in 
support  of  our  foreign  trade,  and  resulted 
in  reducing  our  capital  indebtedness  abroad 
by  more  than  fifty  per  cent. 

Other  Remittances 

Charges  for  interest  and  dividends  on 
American  .securities  remaining  in  the 
possession  of  foreign  holders  form  another 
invisible  item  of  the  balance.  In  the  same 
class  are  charges  for  insurance  premiums, 
for  freights,  and  for  travelling  expen.ses  of 
American  tourists  abroad.  Such  pay- 
ments were  very  considerable  before  the 
war,  though  it  is  impossible  to  estimate 
them  now  with  assurance  of  even  approx- 
imate accuracy. 

Manv  Americans  are  living  in  Europe, 

[17 


as  fonneilv.   ;in( 
from   every   clas 

aj;aiii  travelling  ahroad  speiKliiig  large 
siiiiis.  Tn  these  expenditures  may  he 
added  the  sums  of  money  left  in  France 
hy  the  members  of  the  American  Ex])edi- 
tionary  Forces.  Also,  during  the  larger 
part  of  the  period  under  review,  we  did  not 
have  the  great  merchant  n>arire  we  now 
possess.      Our    new 


I  lie  tourists  who  come      merchandise,    which    can    be    .seen    most 
of  our   po])ulation   are      cicarly   in    the    ca.se    of    our    trade    with 

(iermaiiy.      Our  export    to    (lermany   of 
$;511,4;57,;{77  worth  of  goods  in  tiie  calen- 
dar year  lO-iO,  more  than  three-fourths  of 
which    consisted    of    cotton,    other    raw 
materials,    and    food-stuffs,    exceeds    the 
amount  during  any  previous  year  except 
V.)\'i    and    litis.     As    we  imj)orted  from 
('•ermany  only  $88,- 
8;50,'-280.  the  balance 
of   $^22'-2,()(»l  .()!)? 
could  not  have  been 
(inanced  entirely  by 
ordinary  short -term 
banking. 

The  remittances 
of  immigrants  and 
of  our  relief  or- 
ganizations form 
another  invisible 
item  of  no  .small 
amount .  In  t  he 
name  of  cliarity, 
.American  funds 
have  gone  abroad 
in  the  form  of  food, 


fleet  of  cargo  car- 
riers did  not  engage 
in  trade  until  l!»l!t, 
and,  therefore,  the 
principal  j^art  of  the 
liigli  ocean  freight 
rates  of  I  li<'  war 
]H'rio(l  was  paid  to 
foreign  shi])|)ing 
companies.  With 
regard  to  insurance 
premiums,  it  must 
be  remembered  t  ha t 
our  laws  |)re\eiit 
the  adetpiatc  dis- 
tribution among 
our  com])anies  of 
risks  written  by  them.    Therefore,  a  great     clothing,  medicines,  and  other  supplies  for 


('nil Jul  [iiukintj  fit  (jouds  fill   tsjiuii  is  rti'i/ 
essential 


amount  of  ,\merican  reinsurance  is  taken 
annually  by  British  concerns 

American  funds  have  also  been  sent 
abroad  for  the  purpose  of  purciiasing  de- 
preciated   foreign    currency    bonds,  bank 


the  relief  of  distress  in  Europe,  the  Near 
East  and  the  Far  East.  Not  only  is  this 
an  entirely  new  item  in  our  balance,  but 
it  is  an  evidence  that  our  symi)athies  are 
as  wide  as  our  trade.     Our  inunigrants. 


notes,  and  exchange.    AVith  European  ex-  too,  have  sent  money  either  in  the  form 

changes  abnormally  low,  dollar  values  of  of  food  drafts  or  postal  money  orders  to 

all  securities  ])ayal)le  in  European  curreu-  their  relatives  at  home,  or  have  themselves 

cies  have  greatly  depreciated.    Americans  returned   to  their  native  lands   with  the 

have  ])urcha,sed  on  a  considerable  scale  for  savings  of  their  war  wages. 
])rofits  to  be  made  out  of  the  return  o'' the  An  important  invisible  item  is  thai   of 

foreign  exchanges  to  former  levels.    'I'hey  floating   credits.      The   estimates   of    I  lie 

have  bought  Japanese  and  Chinese  ster-  amoiml    of   this   item   vary   greatly,   but. 


ling  l)onds,  French  and  Mclgian  internal 
loans,  and  (Icrman  nuuiicipal  bonds  and 
bank  notes,  etc.,  as  well  as  foreign  ex- 
change bills  in  large  amoimts. 


in  view  of  the  large  total  amounts 
which  till'  oilier  items  discussed  nui.st 
reach,  it  is  extremely  doubtful  if  the  total 
of    unfunded    or   short-time  credits    can 


The   transfer  to   Europe    of  American  be  extraordinarily  large, 
fimds  through  such  jjurchases  has  had  a  .\merican  enterprise  cajjital,  allractcd 

considerable  influence  upon  our  ex|)orts  of  \>\  tiic  hope  of  profits  in  the  comparatively 

18  1 


iiiulfNcldpfcl  parts  of  tlie  earth,  is  tlio  last 
iii\isil)l(>  ilt'iu  of  considoraljle  importaiico. 
It  lias  goiu'  into  oil  ami  milling  develo])- 
meiits  ill  Ci'iitral  ami  South  America,  into 
Cuhaii  sugar  plantations,  Chilean  nitrate 
lieds,  l,a  Plate,  Brazilian  and  ('oloml)iau 
|)a(kini;  houses,  into  the  rubber  and  hemp 
lilautations  of  the  Far  East,  the  transpor- 
tation system  of  China,  Euroi)ean  indus- 
tries, aiul  esi)ecially  into  the  establish- 
ment of  branch  factories  across  the  Cana- 
dian bonier.  Such  capital  will  helj)  de- 
velop the  vast  untouched  resources  of  the 
world.  It  is  necessary  that  we  search  in 
the  new  storehou.ses  of  raw  materials  for 
oppnrtunitit's  of  harnessing  water-]jower 
and  utilizing  fertile  soils  by  irrigation. 
It  is  in  these  enterprises  that  opportunity 
is  beckoning  many  American  investors: 
ami  their  |)ioncer  s])irit  is  leading  tlieui  to 


blaze  new  trails  in  other  countries.  The 
building  of  a  greater  America,  which  in  a 
business,  financial  and  moral  sen.se  will 
have  world-wide  interests,  is  of  such  sig- 
nificance to  our  whole  economic  structure 
as  to  merit  the  active  cooperation  of  all 
our  citizens. 

We  have  now  seen  that  our  huge  excess 
of  merchandise  exports  over  im|)orts  has 
been  balanced  by  a  variety  of  invisible 
items  representing  capital  loans,  remit- 
tances abroad  of  funds,  and  payments  for 
many  ])urposes.  In  six  ami  a  half  years  of 
the  war  and  post-war  period,  the.se  in- 
visible items  reached  a  total  of  nearly 
.$^20,000,000,000.  The  reader  may  well 
ask  if  this  means  only  a  growth  in  the  size 
of  our  trade,  or  if  it  also  signifies  a  funda- 
mental change  in  its  character. 


Shipping  cotton  from  a  Southern  port 


[19 


A  Creditor  Nation's  Opportunities 


IN  the  widest  sense,  the  comiiKxhties 
which  nations  have  to  offer  their 
neighbors  fall  into  three  general  cate- 
gories: those  commodities  representing 
natnral  resources — the  product  of  field, 
forest  and  mine;  manufactures — the  prod- 
uct of  machinery  and  the  factory  worker's 
skill;  and  cajjital — the  accumulated  sur- 
plus of  industry  of  every  description. 

So  long  as  we  were  a  country  with  a 
great  area  of  new  land  in  the  West  inviting 
the  development  of  our  energetic  citizens 
and  attracting  the  investment  of  ff)rcigii 
ca])ital  in  our  growing  transportation 
system,  we  were,  as  regards  other  coun- 
tries, a  debtor  nation.  We  liad  not  capital 
enough  ourselves  to  carry  out  the  huge 
development  we  were  undertaking  and 
we  called  in  the  assistance  of  those  nations 
with  money  to  lend.  Foreigners  invested 
in  the  United  States  not  only  because  they 
had  confidence  in  the  future  prosperity 
of  tiie  nation  and  the  fidelity  of  the  people 
to  their  engagements,  but  also  because 
they  recognized  that  upon  the  ])rosperity 
of  countries  other  than  theirs  rested  their 
own  export  trade.  By  investments  they 
were  creating  a  demand  for,  and  sui)i)ly- 
ing  the  means  to  buy,  their  goods.  Tlicre- 
fore,  we  furnished  an  excellent  market  for 
the  products  of  our  creditors. 

Payment  Made  In  Goods 

Creditor  nations  as  a  rule  do  not  seek 
payment  of  their  interest  or  their  principal 
in  money,  as  they  are  apt  to  reinvest 
where  experience  has  [jroxcd  I  hat  loans 
may  be  placed  1o  atlvantage.  Rat  her,  they 
want  payin<Mil  in  merchandise,  since  the 
larger  manufacturing  nations,  while  rich 
in  many  fundamental  natnral  rcs(>ur(<'s, 
such  as  coal  and  iron,  arc  oflcn  lacking  in 
20] 


raw  materials,  such  as  cotton,  wool,  or 
copper.  So  the  lenders  of  capital  took 
their  pay  from  the  United  States  in  such 
of  our  goods  as  they  needed  for  their 
economic  exi.stence;  we  in  turn  received 
pay  for  our  goods  .sold  in  foreign  countries 
])artly  in  merchandise,  partly  in  capital 
loans,  and  partly  in  other  services,  such  as 
those  for  which  .Vincrican  tourists  spent 
money  so  lavi-shly. 

Hut  the  countries  which  were  exporting 
capital  and  manufactures  on  a  large  scale 
were  getting  their  eeinivalent  in  some  way. 
This  was — let  it  be  especially  noted — in 
the  form  of  merchandise  imported  greatly 
in  excess  of  their  goods  exported.  The 
most  consi)icuous  example  of  such  coun- 
tries was  England,  which  in  191'-2  had  an 
excess  of  merchandise  im])orts  for  home 
consumption  over  exports  of  domestic 
production  of  $700,000,000. 

Under  the  powerful  stinnilus  of  (■a|)ital 
investments  and  energetic  and  intelligent 
workers,  the  United  States  became  not 
only  one  of  the  world's  largest  sources  of 
raw  materials,  but  also  one  of  its  largest 
producers  of  manufactured  goods,  the 
quality  of  which  was  constantly  being  ini- 
I)roved.  Manufactured  articles  of  every 
de.scrii)tii>n  were  being  exported  in  im- 
portant ([Hantities  long  l)cfore  the  war  cre- 
ated a  greatly  increased  demand  for  such 
goods.  'I'licn,  toil,  nuiiiy  of  mu-  exports  of 
foodstull's  went  out  of  the  country  in  the 
form  of  Tnanufactures,  such  as  conden.scd 
milk,  oiconiargarinc  and  canned  salmon. 
Hcforc  1014  we  became  a  country  with  a 
surplus  over  domestic  consuni|)tion  ot 
nianufaclurcil  uoods  for  export  in  addition 
to  our  already  large  suri)lus  of  raw  mate- 
rials, ibit  we  remained  on  the  whole  a 
debtor  couiilrx-,  as  we  used  more  capital 


-4r — y-^w     ^ 


lluniUing  heavy  freight  ut  Xcw  Yurk  for  loading  onto  a  transatlantic  slean 


tlian  we  ourselves  could  supply.  For  for- 
eign capital  investments  we  paid  with 
merchandise  exports  greatly  in  excess  of 
our  imports. 

Nevertheless,  just  before  the  outbreak 
of  the  war  there  were  signs  that  we  were 
approaching  a  period  of  fundamental 
change  in  the  relations  of  our  economic 
life.  All  our  unoccupied  territory  had 
been  opened  to  exploitation  and  we  were 
turning  to  more  intensive  development — 
the  larger  and  better  utilization  of  the 
things  which  we  were  already  using.  In 
addition  to  our  excess  of  merchandise  ex- 
ports over  imports  we  were  beginning  to 
export  capita!  on  a  small  scale.  In  fact,  we 
were  already  finding  foreign  investment, 
particularly  in  the  neighboring  countries 
to  the  North  and  South,  a  tempting  field 


of  profit.  This  change  from  a  debtor  to  a 
creditor  country,  w-hereby  the  export  of 
capital  would  become  one  of  the  principal 
items  in  our  foreign  trade  balance,  might 
have  continued  slowly.  But  the  war  ac- 
celerated the  movement,  and  the  whole 
change  was  coniijleted  in  the  short  space 
of  six  years. 

A  Fundamental  Change 

We  have  definitely  reached  the  position 
of  other  highly  developed  nations.  For- 
eign countries  have  borrowed  from  us  to 
the  extent  of  more  than  $i;!,()()(),()00,00(), 
of  which  huge  amount  $'2,.')()(),()()(),()00  of 
funded  debt  is  owed  to  private  lenders  in 
this  country.  Moreover,  the  movement 
of  capital  from  this  country  to  other 
lands  is  still  going  on,  for  foreign  loans  of 

[21 


a  total  of  nearly  $100,000,()(tO  were  i)laccd 
ill  this  market  in  the  first  two  months  of 
10'-21.  In  short,  the  change  has  taken 
plac'e  hy  the  pressure  of  circumstances 
beyond  our  control,  and  it  is  doubtful  if 
we  could  return  to  our  former  status  with- 
out retrogression  in  all  our  agricultural, 
mainifacturiu};-,  and  connnercial  indus- 
tries. We  must  continue  on  the  path  of 
development  wiiich  we  are  treading,  or  we 
shall  lose  our  place  of  economic  and  |)oliti- 
cal  power  in  the  world,  and  with  it  our 
high  hopes  and  ideals  of  service  to  mankind. 


If  we  set  out  to  travel  eon.sciously  and 
wisely  the  ])atli  of  foreign  trade  which 
o])ens  before  us,  building  firmly  on  the 
foundation  of  our  own  experience,  we  may 
reasonably  expect  in  the  future  to  pass 
througli  certain  other  changes.  These  will 
be  no  more  tiian  other  creditor  nations 
found  they  nuist  uiiderg((  in  (jrdcr  to  sus- 
tain their  prosperity. 

At  the  present  time  we  are  in  the  anom- 
alous position  of  ex|)orting  botli  cajjital 
aiul  merchandise  in  excess  of  our  mer- 
chandise inujorts.     Such  a  ccmdit  ion  can- 


American  steel  for  European  reconstruction  work 
221 


not  coiitiiiiu'  irul(>(iiiit('ly,  for  it  would  lead 
far  a\v;iy  from  any  true  halamc  of  trade. 
Already  the  lialaiice  is  over-weighted,  and 
foreigTi  countries  are  finding  great  diffi- 
eulty  in  ])aying  their  dehts  to  us.  Interest 
payments  on  our  loans  to  otlier  nations 
are  now  very  large  and  will  he  enormous 
when  payment  temporarily  suspendeti  on 
the  Government  loans  is  resumed.  Gold 
is  a  latent  factor  in  the  lialance,  since  it  is 
now  embargoed  by  nearly  all  the  priuci- 
])al  countries  in  the  world;  and  it  may  re- 
main so  temporarily,  as  there  is  not 
enough  gold  to  licjuidate  the  present  for- 
eign indebtedness  to  this  country. 

It  is  obvious,  then,  that  when  those 
countries  which  owe  us  for  our  goods  and 
capital  are  again  reestablished  financially 
and  economically,  they  will  have  to  pay 
us  with  something  more  tangible  than 
new  or  refunded  loans.  Obviously,  there 
are  only  two  methods  by  which  this  in- 
debtedness can  be  li(iuidated. 

One  considerable  means  at  hand  for 
payment  of  the  enormous  sums  owed  to 
us  is  in  the  form  of  goods  imported  in  ex- 
cess of  our  exports.  Clearly,  other  nations 
cannot  sell  goods  to  us  in  sufficient  amounts 
to  liquidate  their  huge  indebtedness,  if  our 
international  trade  is  to  be  saddled  with 
burdensome  duties.  This,  however,  is 
now  more  of  an  economic  than  a  political 
question,  which  must  be  dealt  with  in  such 
a  way  that  differences  in  cost  of  produc- 
tion will  not  prevent  the  competition  in 
foreign  markets  of  our  goods  with  those 
from  other  countries. 

The  onlj'  other  considerable  means  at 
hand  by  which  foreigners  can  pay  their 
debts  to  us  is  by  our  continued  export  of 
capital  on  a  large  .scale.  Among  the  in- 
visible items  discussed  in  the  foregoing 
are  several  which  other  creditor  nations 
do  not  have  to  any  considerable  extent  in 
their  trade  balances.  Our  peojjle  tour 
abroad  for  education  as  well  as  pleasure, 
spending  their  money  more  or  less  freely. 
Many  of  our  immigrants  still  have  close 


tics  with  their  relatives  at  home.  In  the 
future  as  in  the  past  our  generous  impulses 
are  likely  to  be  stirred  by  the  appeal  of 
distress  from  distant  lands. 

More  im])ortant  than  all  these,  however, 
is  the  likelihood  th^t  we  will  continue  to 
reinvest  in  the  bonds  of  foreign  govern- 
ments, municipalitips,  and  cor])orations, 
and  that  interest  on  our  government  loans 
will  remain  suspended  for  several  years. 
While  these  and  other  items,  such  as  spec- 
ulation in  foreign  currency  bonds  andbills, 
remain  of  considerable  importance  on  the 
(lci)it  side  of  our  foreign  trade  balance,  it 
is  (piite  conceivable  that  our  exports  of 
merchandise  will  remain  in  exce.ss  of  our 
merchandise  imports.  It  is  entirely  prob- 
able, however,  that  the  enormous  excess 
which  is  characteristic  of  our  pre.sent  trade 
will  be  considerably  diminished. 

Export  Trade  Can  Be  Maintained 

Such  a  change  in  our  foreign  trade  bal- 
ance need  not,  and  probably  will  not,  be 
made  at  the  expen.se  of  our  exjwrt  trade. 
The  world  still  retjuires  things  which  we 
can  best  supply.  What  men  need  they 
will  ])urcha.se  if  they  are  able  to  pay  there- 
for. When  the  present  reaction  in  prices 
has  run  its  course  our  export  trade  in  mer- 
chandise can,  if  adequately  supported  by 
credit  and  banking  facilities,  be  increased; 
though  the  present  great  excess  over  im- 
]K)rts  cannot  be  carried  for  long. 

The  banker  is  charged  with  the  duty 
of  devising  machinery  for  carrying  and 
settling  international  balances,  and  the 
banker  feeling  his  responsibility  is  already 
at  work  on  the  task.  Several  of  our  larger 
financial  institutions  have  been  furnishing 
many  banking  facilities  and  information 
services  to  their  customers  doing  busi- 
ness in  other  lands.  These  have  met 
our  inunediate  requirements  and  have 
taught  our  merchants  that  credit,  when 
granted  wisely,  is  a  universal  commodity. 

But  our  banks  are  not  e(|ui])ijed  for 
long-term  financing  of  foreign  trade.    The 

[23 


cliicf  iR'cossity  of  tlio  sitiuitinii,  in  fat-t,  is 
for  American  bankers  and  business  men 
to  develop  adequate  credit  and  commer- 
cial inacliincry  to  meet  the  demands  of 
present  exigencies.  Already  \arious  ef- 
forts have  been  made  in  this  direction, 
iiiclndiiig  the  revival  of  tiic  War  Finance 
('or|)oration,  the  e.staiilisiunenl  of  the 
Federal  International  Banking  Corpora- 
lion,  the  Foreign  Credit  Corporation,  the 
International  Acceptance  Bank,  the  Cop- 
per Export  Association,  the  First  Federal 
Foreign  Banking  .\ssociation,  and  the 
propo.sed  establi.shment  of  the  Foreign 
Trade  Financing  Corporation  with  a  capi- 
tal of  $1()(),()00.()00  for  the  jnirpose  of 
furnishing  long-term  credit  to  foreign 
purchasers  of  our  merchandise. 

Duty  Rests  On  All 

By  and  large,  however,  the  duty  of  sup- 
porting our  foreign  trade  does  not  rest 
entirely  on  the  banker.  Our  banks  cannot 
work  alone;  they  must  have  the  coopera- 
tion of  their  cu.stomers,  if  our  trade  is  not 
to  sutler  a  decline  as  spectacular  as  has 
been  its  rise.  If  they  tied  up  their  liquid 
funds  in  long-term  investments,  no  mat- 
ter how  good  the  security,  there  would 
soon  be  no  more  liquid  capital  and  the 
wants  of  our  agriculturists  and  manu- 
facturers could  not  be  supplied. 

The  variety  of  our  foreign  trade  is  now 
.so  wide  that  an  excess  of  production  over 
consumption  reacts  upon  every  class  of 
our  population.  The  duty,  therefore,  of 
supi)orting  our  foreign  trade  in  this  time 
of  readjustment  to  the  more  permanent 
conditions  of  the  future,  rests  on  every  in- 
dividual citizen — whose  welfare  and  pros- 
perity arc  not  independent  of  the  economic 
position  of  his  country. 

The  fact  that  the  time  of  our  national 
political  and  economic  exclusiveness  has 
passed  is  being  more  impressively  illus- 
trated every  day.  We  have  done  a  great 
foreign  business  in  the  past,  but  we  can- 
not expect  the  conditions  of  that  business 
241 


to  remain  stationary.  We  have  sold  vast 
(|uantities  of  our  commodities  to  custom- 
ers outside  of  our  own  country;  we  have 
extended  them  liberal  credits  and  loaned 
them  nnich  capital.  But  it  is  obvious  that 
there  must  be  .some  limit  to  their  buying 
I)()wer  unless  we  in  turn  j)urchase  what 
they  have  to  sell  in  quantities  equal  to 
their  purcha.ses  of  goods  and  capital  from 
us. 

If  we  go  on  taking  measures  to  |)r('\-ciil 
the  sale  of  foreign  commodities  in  our 
country,  if  we  try  to  erect  barriers  which 
retard  the  flow  of  commerce,  we  will  in  the 
long  run  handicap  ourselves  and  work  in- 
comparable injury  to  our  future  ])rosi)er- 
ity.  Already  we  are  seeing  the  products  of 
field  and  factory  piling  up  in  granary  and 
warehouse.  The  real  problem,  therefore, 
is  the  maintenance  of  the  volume  of  our 
trade. 

The  future  rests  not  so  much  on  gov- 
ernment and  politics  as  upon  the  wisdom 
and  sagacity  of  business  men.  Foreign 
exchange  rates  were  "unjieggetl""  by  the 
governments  concerned  in  their  regulation 
in  March,  1919,  and  in  .\pril  of  the  same 
year  it  was  announced  that  the  I'nited 
States  would  make  no  further  advances  to 
foreign  countries.  Thus  the  busine.ss  of 
financing  our  foreign  export  trade  is  again 
in  the  hands  of  the  .\merican  i>eo()le  with- 
out expectation  of  either  the  interference 
or  the  hcl|)  of  the  Inited  States  Treasury, 
except  such  as  may  be  gixen  by  the  re- 
vived War  Finance  Corporation. 

The  American  dollar  now  stands  at  a 
l)reminm  in  cNcry  iuiporlaiit  (iiiancial 
market  of  the  world.  It  is,  therefore,  re- 
peated tiiat  ill  I  lie  iigiit  of  the  foregoing 
account  of  our  foreign  tratle  balances  an 
im|)erati\c  duty  rests  upon  e\ery  .Viiieri- 
caii  who  would  see  his  country  maintain 
its  prosperity  to  take  thought  of  how 
its  future  foreign  trade  maybe  properly 
financeil.  Surely  we  have  the  energy  and 
intelligence  to  solve  the  problem. 


14  DAY  USE 

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